Mary Holm: Car lemons can leave bitter taste

Please ask the young mechanic in last week's column to get in touch with me re investing in a classic car. Mine is a "steal" at $10,000.
Enjoy your page.

Do you by any chance also have a super piece of waterfront land for sale - but for some reason you prefer to show it to potential buyers only at low tide?

Sorry. I'm sure you are genuine. But whenever I see the word "steal" in a sales pitch, I wonder just who might be robbed!

As I said to the young man last week, it can be risky to invest in classic cars or other collectibles you don't know much about, unless "you can get advice from somebody you trust who is not a salesperson". I probably should have added, "or trying to sell you their car - especially if they loved the car".

Judging by the advice in the next letter - which is from the editor of The Dog & Lemon Guide, car expert Clive Matthew-Wilson - our young man would be wise to be wary.

Still, I'll let him make up his own mind. He's got your email.

Classic cars are a very poor investment. With the current economic turmoil, people are looking for safer investments, and some are buying up classic cars in the hope that these vehicles will gain in value. My advice is: don't.

There's a widely held myth that classic cars never lose value and often increase in price. This is basically crap. People who invested in classic cars before the 1987 stock market crash generally lost heavily on the deal. In some cases their vehicles lost three-quarters of their value.

The Wall Street Journal recently reported a severe drop in the price of low to mid-range classic cars, as the owners were forced to unload them in the face of economic downturn.

Even upmarket marques like Ferraris are not immune. These cars tend to be bought during good times by people who have grown rich due to speculation on property or shares. When these investments drop in value, rich people suddenly aren't rich any more so they end up having to auction off their cars for far less than they paid for them.

For example, a 2005 Ferrari 612 Scaglietti, with only 1000km on the odometer, recently sold at Turners Car Auctions for just $255,500, something of bargain considering it sold four years ago for $640,000.
The really rare classics are still reaching record prices because buyers see them as a hedge against economic recession. As long as there are more buyers than sellers for the really rare models, the high prices will continue.

However, if past experience is anything to go by, the current market will quickly turn around, when the sellers begin to outnumber the buyers.

There will always be a few really rich classic car owners who can afford to wait for the recession to end, but there will be many more who are forced to unload their investments prematurely, at a loss. This will signal to the market that the boom is over, which will lower the value of all similar classic cars.

Houses have an intrinsic value simply because people need somewhere to live. Expensive classic cars have no intrinsic value, even as transport, because they're rarely driven - they're essentially expensive works of art. Classic cars have value only because people believe them to have value. As soon as this perception shifts, the asset can quickly become a liability.

For many less wealthy classic car enthusiasts, such as myself, their car is a part of their family. However, most owners will privately admit that they've spent far more on their classic than they could ever hope to get back by selling it. If you take a classic wreck and fully restore it, you can expect to recover between one quarter and one third of the money you spent on it, not including a few thousand hours of your own labour.

I've been restoring classic cars for over 20 years, and my general advice is that people should buy them because they love them, not because they want to make money from them.

Well there we have it, from one who knows. Thanks for your letter.

Interesting to read about how problems arise when people are forced to sell. It's the same old story as with shares, property or any other investment. A basic rule is: don't put yourself in a position in which you might have to sell. That's when the big losses happen.

With regard to your last column and the KiwiSaver survey that quoted dissatisfaction with the lack of information available about members' schemes, any member can have information as often as they like by going into the website www.kiwisaver.govt.nz.

By simply registering and clicking on "Manage My KiwiSaver", members can get a summary of transactions and view all activity on their fund at any time. This'll show them when their and their employer's contributions are credited, the Government's credits and any interest they've earned while their money's waiting to be applied to their investment.

Simple! It's a great scheme.

I'm not quite as enthused as you. For one thing, registering is a bit of a hassle. But once you have, it works pretty well, especially for employees.

You won't find any reference to money you've sent directly to your provider - of particular relevance to non-employees - or information about what has happened to your money after it reached your provider. But the service includes a link to your provider's website so you can check what information is available there.

Even with "Manage My KiwiSaver", some people say it's difficult to follow what money went where. In my book, The Complete KiwiSaver, I quote a comment on this from Alan Pinder, Inland Revenue's acting deputy commissioner of business development and systems (now there's a mouthful).

Says Pinder: "Because employers only file one employer report each month, it can be hard to reconcile your payslip with the statement you get from your scheme provider. But rest assured the amounts balance in the long run."

That suggests that it's probably better to check long-term totals, rather than trying to tick off every individual payment.

If you have any problems with what's listed in "Manage My KiwiSaver" or any other KiwiSaver problems, you should ring 0800 KiwiSaver (0800 549 472) between 8am and 8pm Monday to Friday or 9am and 1pm on Saturdays.

Call me paranoid, but a government "swoop" on KiwiSaver - which you gave as an example of a misunderstanding about KiwiSaver in a Business Herald article last weekend - is not a totally unreasonable fear.

There have been many changes to KiwiSaver already, so it's clear that governments feel free to change the rules as necessary.

Consider the scenario in perhaps 15 or 20 years time when the amount of money is huge, and many people are totally dependent on KiwiSaver for their retirement. Some disaster strikes, one of the schemes blows up, and many hard-working Kiwis are left with no retirement money.

There are loud and insistent cries for them to be "saved". After all, they were persuaded to join by government subsidies and advertising, and they've lost their nest eggs through no fault of their own. Sure there is no government guarantee. There wasn't on the banks either, but political necessity trumps legal obligation.

After several bail-outs like this, the Government decides that shares (or whatever) are too risky, and requires the schemes to invest in safe government bonds, either immediately or for each person when they are within 15 years of retirement, to guarantee the funds will be there. So they mandate the exchange of those risky shares (or bonds or whatever) for safe government bonds.

And what are the government bonds? Bits of paper issued by the Government saying "I will pay you". In effect the Government has "swooped" on the pension assets.

Couldn't happen? Didn't something very much like this just happen last October in Argentina? In case Argentina seems a bit "third world", consider the response from a senior American politician.

US Representative George Miller (Democrat of California) hailed the Argentine approach as a "beacon for us to follow. By socialising these funds, Argentina has overcome the key deficiencies of private pensions.

"As presently structured, a 401k or IRA [US schemes somewhat like KiwiSaver] subjects the investor to the fluctuations of the stock and bond markets," Miller complained. "It also creates a discrepancy between those who can and those who cannot afford to put aside money for this purpose.

"By absorbing all 401k and IRA accounts into one uniform government investment pool, similar to Social Security, we will eliminate these risks," Miller continued. "The government would ensure that everyone is covered and that pension benefits will be paid out on a more equitable collective basis than is currently done with these individualised 401k and IRA accounts."

If it's thinkable in the "land of the free" then it is not unthinkable for New Zealand too.

Look hard enough, and you'll probably be able to quote a US Congressman saying almost anything. The chances of George Miller's idea being adopted must be zero.

It's true that a future government could make radical changes. But why stop at KiwiSaver? A government could just as easily "socialise" all retirement savings. Or perhaps all retirement savings except KiwiSaver, because it's the Government's baby.

If we head down that track, we shouldn't save for retirement at all.

While we're at it, should we be planting gardens, given that a future government might grab all our flowers and vegies to give to others? Should we even be having children, given that a future government might enslave them?

I've always suggested people put into KiwiSaver the minimum to get all the incentives, and do further retirement saving in investments they can access whenever they need the money. Another reason for this strategy might be to limit exposure to KiwiSaver for fear of nasty government action.

But to not join KiwiSaver at all - and miss out on its generous incentives - because of a remotely possible scenario seems pretty silly.

I'm afraid that I'm going to accept your invitation to call you paranoid.

Still, if you want to stay out, that's fine with me. That's one less KiwiSaver account my taxpayer dollars will be supporting.

Mary Holm is a seminar presenter, part-time university lecturer and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.